IPPs push up power costs, industry says

Scott Simpson,
Vancouver Sun
March 18, 2009

Hydro could wind up selling power for less than it has to pay for it, critic claims

BC Hydro customers could take a $400-million-per-year financial hit if the Crown corporation signs up too many independent power producers to sell it electricity, a spokesman for Hydro industrial customers is warning.

The Vancouver Sun has learned that Brian Wallace, legal counsel for the Joint Industry Electricity Steering Committee, said in speech last week that without restrictions on expansion of independents, or IPPs, Hydro could be forced to sell large annual power surpluses at a loss to buyers in the United States.

Wallace said Hydro could find itself in a position where it is contracted to pay IPPs $120 a megawatt hour for electricity -- but find no buyers willing to pay more than $60.

Wallace said Hydro "clearly" needs more electricity, but in the view of the industry groups, Hydro is planning to buy "more than is required to meet customer needs."

Last year Hydro issued a 'Clean Call' for green power and IPPs responded with bids to build about 17,000 gigawatt hours of new power supply.

Hydro eventually decided to narrow its call to 3,000 gigawatt hours -- equivalent to about 25 per cent of current supply -- but indicated it will contract for as much as 5,000 if it finds the bid prices affordable.

At the sixth annual B.C. Power Summit last week, however, Wallace urged Hydro and the province to rebuff what he described as IPP demands to "aggressively" increase green power production.

"Going along with such demands will lead to substantial exports of electricity on a regular basis, and annual losses in the range of $400 million per year," Wallace said, according to a printed copy of his speech.

"These losses are equal to about 13 per cent of current domestic revenues or 90 per cent of BC Hydro's net income."

Melissa Davis, executive director of B.C. Citizens for Public Power, a group that opposes private sector power development, said Wallace's comments prove there is widespread opposition to the provincial government's energy policy and expansion of IPPs.

"Academics, environmentalists, labour groups, first nations, and thousands of impacted ratepayers have criticized the government's energy policy and their privatization of B.C.'s electricity sector," Davis said. "Our observations have been repeatedly disputed and dismissed. Wallace's report reinforces our collective claims with respect to the exaggerated need for new sources of electricity."

BC Hydro president and CEO Bob Elton said Hydro is trying to "strike a balance" between buying too much electricity and buying too little, and believes the nominal 3,000 gigawatt hour cap represents that balance.

Elton also noted that no price has been set for electricity purchased in the Clean Call, so Wallace's numbers may not be correct.

Jim Gemmill, chairman of the board of directors of the Independent Power Producers Association of B.C., said he was sympathetic to the industry group, given the economic challenges faced by members in the forest and mining industries. "They are are obviously going through some tough times right now and I don't think we can ignore that," Gemmill said.

But he noted that Wallace's assumptions -- and Hydro's -- are based on a very ambitious conservation program wherein all Hydro customers reduce electricity consumption about 25 per cent, with only a moderate contribution of new power needed to augment that.

If Hydro fails to reach conservation targets, he said, the province could be challenged to find enough power to support domestic demand.